Shutterfly Inc. Reports Operating Results (10-K)

Shutterfly Inc. has a market cap of $936.46 million; its shares were traded at around $27.01 with a P/E ratio of 50.96 and P/S ratio of 1.98. Shutterfly Inc. had an annual average earning growth of 19.6% over the past 5 years.

Highlight of Business Operations:

Net revenues increased $165.6 million, or 54%, in 2011 compared to 2010. Revenue growth was attributable to increases in all revenue categories. PPS revenues increased $156.1 million, or 71%, to $374.7 million in 2011 compared to 2010. The increase in PPS is primarily a result of increased sales of photo books and greeting and stationery cards; including $93.0 million of net revenues from the sales of Tiny Prints products from the acquisition date through December 31, 2011. Print revenue increased $1.1 million, or 1%, to $85.0 million in 2011 compared to 2010. The overall increase in print revenue was primarily due to an increase in large format print revenue offset by a decrease in photocard revenue and 4x6 print revenue which represented 7% of total net revenues versus 10% in the prior year. In terms of product mix, PPS represented 79% and Prints represented 18% of revenue in 2011. This compares to 71% and 27% in 2010. Revenue from our commercial print initiative increased $8.4 million, or 165%, to $13.5 million for 2011, and represented 3% of our total net revenues in 2011 compared to 2% in 2010. This increase is primarily the result of sales to customers acquired in the WMSG acquisition.

Our technology and development expense increased $17.3 million, or 36%, in 2011 compared to 2010, primarily as a result of our acquisition of Tiny Prints in April 2011. As a percentage of net revenues, technology and development expense decreased to 14% in 2011 from 16% for the same period in 2010. The increase in technology and development expense was primarily composed of an increase of $9.7 million related to personnel and related costs for employees, an increase in stock-based compensation of $5.3 million, an increase of $3.1 million related to professional and outside services consultants involved with website development and website infrastructure support teams, and an increase in facility related costs of $2.3 million largely related to co-location and other support contracts. These factors were partially offset by a decrease in depreciation expense of $1.5 million and an increase of $1.9 million in website development costs capitalized in the current period compared to the same period in the prior year.

Our sales and marketing expense increased $54.7 million, or 92%, in 2011 compared to 2010, primarily as a result of our acquisition of Tiny Prints in April 2011. As a percentage of net revenues, total sales and marketing expense increased to 24% in 2011 from 19% in 2010. The increase in sales and marketing expense was primarily composed of an increase of $31.0 million related to expanded online media, direct response, and partner marketing campaigns. The increase is also attributable to a $8.0 million increase in personnel and related costs associated with the expansion of our internal marketing team including the addition of Tiny Prints headcount, an increase of $7.4 million in stock based compensation, a $7.1 million increase in amortization which is mostly a result of intangible asset amortization from the Tiny Prints acquisition, and $0.9 million in professional fees.

Net revenues increased $61.3 million, or 25%, in 2010 compared to 2009. Revenue growth was attributable to increases in all revenue categories. PPS revenues increased $57.0 million, or 35%, to $218.7 million in 2010 compared to 2009. The increase in PPS is primarily a result of increased sales of photo books and greeting and stationery cards. Print revenue increased $3.0 million, or 4%, to $83.9 million in 2010 compared to 2009. The overall increase in print revenue was primarily due to an increase in photocard revenue offset by a decrease in 4x6 print revenue which represented 10% of total net revenues versus 14% in the prior year. In terms of product mix, PPS represented 71% and Prints represented 27% of revenue in 2010. This compares to 66% and 33% in 2009. Revenue from our commercial print initiative increased $1.3 million, or 33%, to $5.1 million for 2010, and represented 2% of our total net revenues.

Our general and administrative expense increased $5.6 million, or 16%, in 2010 compared to 2009, and decreased as a percentage of net revenues from 14% in 2009 to 13% in 2010. The increase in general and administrative expense is primarily due to an increase in stock based compensation of $1.9 million and personnel related costs of $1.8 million as a result of increased headcount. In 2010, we also incurred an increase in credit card fees of $1.8 million which was driven by the increase in consumer product revenue as compared to the prior year. During 2009, we received two installment payments from cross-licensing agreements, whereas in the current period we received one installment payment. These payments were recognized as reductions of general and administrative expense. The overall increase in general and administrative expense was partially offset by a decrease of $0.5 million of depreciation and gains on the disposal of certain fixed assets of $0.7 million.

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